Is economics out of touch with the real world?

I feel like I should comment on this article in the New York Times from over the weekend.

The article airs out a couple of complaints about the sorts of research the Nobel prize rewards and the political nature of the prize:

“They’re not engaged in the problems of the actual world,” said James K. Galbraith, an economist at the Lyndon B. Johnson School of Public Affairs at the University of Texas in Austin…

Complaints about prize winners generally fall into one of three categories: too ideological; too preoccupied with theory and mathematics; or too narrowly focused on problems facing Wall Street instead of on pressing global issues like inequality, poverty and the environment.

The article then takes a bit of a shot at the U of C’s dominance of the Nobel Prize in Economics in the 90s:

“Historically, there was a lot of justification to the critique that it was somewhat ideological in nature,” said Joseph E. Stiglitz, who won the prize in 2001…

He referred to a six-year period in the 1990s when economists from the University of Chicago — Milton Friedman’s headquarters and the temple of laissez-faire economics — won five of the prizes. Some of that work, he complained, “was clearly not breakthrough in any fundamental sense.”

Now I have a couple of responses:

1. There is a pretty tremendous lag in the research that the Nobel prize rewards. Essentially, research conducted 30 years ago is getting the spotlight now, so it is a pretty bad indicator of what economics is doing now. Galbraith might wish that more people did the sort of research he does (which they do, he just doesn’t agree with what mainstream economists find), but it’s silly for him to make this claim based on the recipients of the Nobel prize.

2. Economics is pretty preoccupied with theory and math, but this is a dumb line of attack to take on a discipline that considers itself a science (or at least tries to emulate one). Of course, it is preoccupied with theory and math! In fact, when the discipline wasn’t preoccupied with such things it had pretty terrible consequences. When Kensyians were running around telling people that increasing inflation will decrease unemployment based on a scatter plot it was pretty harmful for all involved. If you are going to be making inference about how to deal with real world problems you better do it right and theory and math are two pretty good ways to do that.

3. The U of C did dominate the Nobel prize in the 90s, but I don’t see how Stiglitz can be so critical of the guys that won it. All are well published economists that have shaped their areas of research. But, seeing as Stiglitz doesn’t name any names, nor does he provide any analysis to back up his claim, it is sort of hard to engage him on this.